Editorial: California must avert unemployment insurance fund disaster

MediaNews editorial

Posted:
11/29/2009 12:00:00 AM PST

CALIFORNIA'S 12.5 percent unemployment rate is the worst since 1940, at the end of the Great Depression. As a result, the state's jobless benefit fund is heading for a fiscal crises unless the Legislature acts to prevent it.

During the robust economy earlier in the decade, the Legislature significantly increased unemployment benefits, which were grossly inadequate in a state with a high cost of living.

Even with the increase in payments to a maximum of $450 a week, there are 15 states that pay higher unemployment benefits.

Unfortunately, in an all-too-typical action, the Legislature increased obligations on unemployment benefits without any increases in taxes to pay for them. Employer contributions were not raised because it would have required a two-thirds vote, which was politically impossible at the time.

During a healthy economy, California had no problem financing the higher jobless benefits. But with the steep and lengthy recession, the state is unable to raise enough revenues to meet its unemployment benefit obligations.

California's unemployment insurance fund is expected to end the year $7.4 billion in the hole. To keep benefits flowing, the state already has borrowed $4.7 billion from the federal government, which it must repay.

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Interest payments have been waived until 2011 as part of the federal stimulus package. However, interest is accruing at a 5 percent annual rate and will have to be paid in 2011, when it could be nearing $750 million. The money would have to be drawn from the state's general fund, which is facing a $20.7 billion deficit.

The alternative to accumulating a huge debt and hundreds of millions of dollars in interest payments to the federal government is to actually raise enough revenue to support the unemployment insurance fund.

There are several ways to prevent a fiscal train wreck. Employer contributions could be increased with a higher rate or by raising the $7,000 cap on taxable wages. California now has the lowest cap in the nation.

Also, benefits could be reduced. Currently, the maximum weekly benefit is either $450 or 50 percent of lost wages, whichever is smallest. The 50 percent figure could be lowered without affecting the top benefit rate for most full-time workers who have lost their jobs.

To qualify for benefits, a laid-off worker must have earned only $1,300 during one quarter of the most recent year. That number could be raised to save money.

A combination of the above, even on a temporary basis, would go a long way toward stemming the flood of red ink that is adding to the state's debt.

Even if the economy improves as predicted, California's unemployment rate, the fourth highest in the nation, is expected to remain high for a year or two. That means substantial unemployment benefits will have to continue to help millions of unemployed Californians maintain a minimum standard of living and prevent the state's economy from further erosion.

Taking the necessary steps to shore up the state's unemployment insurance fund will require leadership from the governor and bipartisan cooperation in the Legislature to get the necessary two-thirds vote. The alternative is unacceptable debt and a possible tax on employers imposed by the federal government if the state fails to make interest payments in 2011.

We urge our lawmakers in Sacramento take action as quickly as possible to avoid a fiscal disaster that can be averted.